Vistaprint parent Cimpress NV (NASDAQ:CMPR) released fiscal-second-quarter 2019 results on Wednesday after the market closed, outlining modest growth in the crucial holiday season that left both the company and its shareholders underwhelmed.

With the stock down 26% today as of this writing, let's read the fine print to get a better idea of what happened and what investors should be watching in the months ahead.

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IMAGE SOURCE: GETTY IMAGES.

Cimpress results: The raw numbers

Metric

Fiscal Q2 2019*

Fiscal Q2 2018

Year-Over-Year Change

Revenue

$825.6 million

$762.1 million

8.3%

GAAP net income (loss) attributable to Cimpress NV

$69.0 million

$30.6 million

125.4%

GAAP earnings (loss) per diluted share

$2.17

$0.93

133.3%

DATA SOURCE: CIMPRESS. *FOR THE QUARTER ENDED Dec. 31, 2018. GAAP = generally accepted accounting principles.

What happened with Cimpress this quarter?

  • Cimpress does not provide specific quarterly guidance. So with the caveat that we don't usually pay close attention to Wall Street's demands, these results were below consensus estimates for earnings of $2.38 per share on revenue of $855 million.
  • Excluding contributions from acquisitions, organic constant-currency revenue climbed 6%.
  • By business segment:
    • Vistaprint revenue climbed 1.3% to $434.3 million, far below expectations due to a 2% decline in Vistaprint's constant-currency consumer product bookings. Vistaprint endured steep competition and higher discounting, less-efficient advertising spending, and lower conversations from a higher number of mobile sessions. Segment profit declined 15.4% to $83.8 million.
    • Upload and Print revenue rose 5.9% to $203.8 million, also below expectations given increased competition via pricing and advertising pressure. Segment profit was roughly flat at $22.5 million.
    • National Pen revenue increased 5.4% to just under $133 million, also below expectations, as significantly increased direct mail prospecting did not yield anticipated returns. Segment profit rose 41% to $24.9 million but would have declined year over year had it not been for a $12 million positive impact of new revenue recognition standards adopted earlier this fiscal year.
    • All other business revenue nearly tripled to $61.8 million, mostly comprised of early-stage businesses managed at an operating loss (with the exception of BuildASign). To be sure, these other businesses incurred consolidated loss of $7.6 million.
  • Cimpress generated operating cash flow of $183.3 million and free cash flow of $154.8 million, driven primarily by favorable working capital and last quarter's acquisition of BuildASign.

What management had to say

Cimpress CEO Robert Keane began his quarterly letter to investors by admitting, "We had a poor quarter, the worst in a long time."

Keane elaborated:

As you will recall, we were also disappointed with our revenue growth last quarter. Our deteriorating performance over the past six plus months led to some serious soul searching about the root causes and what we will do about them. Many of our challenges are within our control as described in this letter. Others are external in nature: competitors that drive up the cost of advertising and drive down the price to customers, and key input costs such as paper are increasing. These challenges drive a need for urgency, focus, and operational excellence.

As such, Cimpress is taking a variety of actions to address its weaknesses, most notably by redirecting engineering, analytical marketing, and operations resources to improve Vistaprint's customer experience, marketing, and decision-making processes. Cimpress is also streamlining its management at the Upload and Print Group, temporarily reducing prospect marketing investments at National Pen, and reorganizing or shutting down certain members of the "other businesses" segment to ensure their resources are allocated to higher-potential areas of the company.

Finally, Keane noted he has reduced his cash compensation to the legally required minimum salary of $455 per week. Instead, "as an indication of [his] strong belief in the future of Cimpress," Keane will be awarded performance share units that will be worthless unless the three-year moving average of Cimpress stock achieves a compound annual growth rate of at least 11% over a rolling 6- to 10-year period.

Looking forward

Given its disappointing performance, Vistaprint adjusted its revenue growth outlook "for the foreseeable future" to call for flat to negative growth at Vistaprint, high-single-digit growth from both Upload and Print and National Pen, and double-digit growth from all other businesses.

Of course, Cimpress might well be taking the right steps to address investors' concerns and ultimately live up to its promise to maximize its intrinsic per-share value over the long term. But it's no surprise to see Cimpress plunging today given its pronounced underperformance in the typically lucrative holiday season.

Check out all our earnings call transcripts.